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Mobile Manufacturing in India

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Page 1: Mobile Manufacturing in India

I B E Fndia rand quity oundationwww.ibef.org

INDIAFASTEST GROWING

FREE MARKET DEMOCRACY

Mobile Manufacturing: India goes Chinaway

MANUFACTURING

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MOBILE MANUFACTURING: INDIA GOES CHINA WAY

India has become the second largest mobile handset market in the world.According to a study by Research and Markets (Dublin, Ireland), the Indianmobile handset market is now worth about US$ 2 billion, but will surge byover 60 percent in two years.

The report reiterates that Indian mobile subscribers are willing to pay forupgrades, value-based services, and advanced models that offer betterservices.

The growth has caught the imagination of global handset majors. More thana dozen large electronic manufacturing service companies are sprucing upplans to set up their handset facilities in India. Apart from catering to theburgeoning Indian market, they are also looking at this country as a sourcingbase for low-cost phones.

New facilitiesNew facilitiesNew facilitiesNew facilitiesNew facilities

Korean consumer electronics major LG Electronics is one such company. Ithas a facility in the outskirts of Delhi and is setting up another near Pune. By2010, LG aims to produce 20 million mobile phone units of which 50 percent will cater to the export market. The facility will involve an investmentof US$ 60 million by the year 2010.

Nokia, a leader in India's US$2.5 billion mobile phone market, is building aunit in Chennai. The manufacturing unit will be Nokia’s tenth mobile deviceproduction facility globally. Nokia anticipates investing an estimated US$100-150 million in the India production plant.

"We selected Chennai to be the location for the factory thanks to theavailability of skilled labour, friendly business environment, support from thegovernment, good logistics connections and overall cost-efficiency," saidPekka Ala-Pietila, President, Nokia.

Construction work at the facility has already begun. Production is expectedto begin in the first half of 2006. Nokia foresees ramping up the factorygradually and the work force reaching approximately 2,000 employees whenproduction is full scale.

Another Finnish firm, Elcoteq, the world's third-largest supplier of handsetsto original equipment manufacturers (OEMs), has already set up a facility inBangalore. Elcoteq’s Indian plant is relatively small compared to its plantselsewhere – it will produce about 4 to 6 million handsets in a year, similar insize to the company’s unit in Russia. But it could set a trend for smallermanufacturers to begin looking at India.

More importantly, Elcoteq is also trying to integrate the manufacturingprocess with the local supply chain. Plastics, electro-mechanical/mechanicalparts and packaging materials will be sourced from local firms with whomElcoteq is in discussions. Once key components are made in India, it will

More than a dozenlarge electronicmanufacturing servicecompanies are spruc-ing up plans to set uptheir handset facilitiesin India.

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achieve globally competitive costs and show the way forward for othermanufacturers as well.

Several other companies are drawing up plans. Sony Ericsson, the world’ssixth-biggest mobile phone maker, has asked its vendors to look atmanufacturing phones in India.

Motorola established its R&D facility in Bangalore in 1991 and has identifiedIndia as a Research and Development (R&D) base. Motorola Inc. chairmanand CEO, Edward J. Zander, on a recent visit to India, said “We might look atsetting up back-end operations and assembling units something like an SKD(semi-knocked down) unit in India.”

Apart from manufacturing, India is being looked at as a potential servicecentre for the global mobile phone market. For example, in addition to themanufacturing activity, Nokia is also looking at Chennai as a base for openinga global mobile networks operation centre, which would carry out work formobile operators in the Asia-Pacific region, Europe, the Middle East andAfrica.

Taiwanese mobile handset manufacturer, BENQ, which entered the Indianmarket recently, is expected to open a customer service call centre in India.

The Chinese are comingThe Chinese are comingThe Chinese are comingThe Chinese are comingThe Chinese are coming

Chinese manufacturers too seem to be eyeing India. BusinessWeek hasreported that ZTE Corp. is priming a unit to make mobile phones and DSLmodems near Delhi, while rival Huawei Technologies Co. is awaiting approvalto manufacture handsets and other gears. The Haier Group and Ningbo BirdCo. are also looking for an entry into the market. Using India as an exportbase is especially beneficial for Chinese companies, who can save 5 per centto 10 per cent on shipping. From China's perspective, servicing Europe orAfrica from India is easier as distances are shorter.

The durability factorThe durability factorThe durability factorThe durability factorThe durability factor

The cost effectiveness of manufacturing in India seems to be the most alluringbait for handset manufacturers. Increasingly fierce competition in thehandsets market (call rates at 1-2 cents are among the lowest in the world)has created an environment where on an average, 1.5 to 2 million users arecoming aboard every month. This in turn allows manufacturers to spreadtheir fixed costs more easily compared to other markets.

There are also two human resources-related factors working in India’s favour.First, wage costs are lower compared to several countries in Asia andEurope. But, even if a country competes with India in terms of low wagecosts, India offers a demographic profile that few countries can match. Abouthalf the population, which forms the prime low-cost working group, is below

Apart from manufac-turing, India is beinglooked at as a potentialservice centre for theglobal mobile phonemarket.

MOBILE MANUFACTURING: INDIA GOES CHINA WAY

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The boom in theIndian market is partof a global trend.Research groupGartner has predictedthat the global mobilehandset marketwould rise by 16 percent to 780 millionunits in 2005.

25 years.

In developed countries, or even in South-East-Asia, handsets are changedevery six months. However, buying patterns are different in India. Peopledo not change their handsets as frequently. The challenge therefore is toproduce more robust handsets at a lower cost, or to produce handsetsthat are cheap enough for people to afford to change them at least everyone-and-a-half years.

The next ChinaThe next ChinaThe next ChinaThe next ChinaThe next China?

All this points to the next big question: could India catch up with Chinaas a mobile handset manufacturing giant? China started early and actuallygained from some of the large global manufacturers’ reluctance to investin India in the nineties. For instance, Motorola opened a factory in Chinaafter pursuing a proposal in India for some time. China now boasts ofhuge production centres. Nokia’s production facility in Beijing produces35 million units a year and is the largest handset manufacturing facility inthe world. China produced 182 million units out of the 300 million unitsproduced in Asia in 2004.

However, India is now very much in the reckoning. Like China, India haslow labour costs and a potentially large domestic market. Manufacturersworried about the bulk of their low-cost investment in China may wantto spread their risk by investing in India. For instance, senior officials atElcoteq project that in five years the size of their India operations wouldmatch that of their China facilities.

The boom in the Indian market is part of a global trend. Research groupGartner has predicted that the global mobile handset market would riseby 16 per cent to 780 million units in 2005. The overwhelming bulk ofgrowth is expected to come from China, India, Russia and Brazil.

MOBILE MANUFACTURING: INDIA GOES CHINA WAY

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M A N U F A C T U R I N G

Thethe Ministry of Commerce, Government of India and

the Confederation of Indian Industry.

India Brand Equity Foundation is a public - private partnershipbetween

The Foundation's primary objectiveis to build positive economic perceptions of India globally.

I B E Fndia rand quity oundationc/o Confederation of Indian Industry249-F Sector 18Udyog Vihar Phase IVGurgaon 122015 HaryanaINDIA

Tel +91 124 501 4087 Fax +91 124 501 3873E-mail [email protected] www.ibef.org

A U G U S T 2 0 0 5

Thethe Ministry of Commerce, Government of India and

the Confederation of Indian Industry.

India Brand Equity Foundation is a public - private partnershipbetween

The Foundation's primary objectiveis to build positive economic perceptions of India globally.

I B E Fndia rand quity oundationc/o Confederation of Indian Industry249-F Sector 18Udyog Vihar Phase IVGurgaon 122015 HaryanaINDIA

Tel +91 124 501 4087 Fax +91 124 501 3873E-mail [email protected] www.ibef.org

S E P T E M B E R 2 0 0 5